The Context: Who Can Resist Jumping In?

Unless you have been sleeping under a rock, you have undoubtedly heard that Google purchased YouTube for $1.65 billion in October 2006.  YouTube, as you know - and shame on you if you don’t - is essentially a website for watching and sharing amateur and professional online videos.

At the present moment, online video viewing continues to grow in popularity.  In fact, according to eMarketer (eMarketer.com), 107.7 million people viewed online video at least once per month in 2006 and the firm projects that this number will grow to 157 million in 2010.  Furthermore, eMarketer projects Online Video Advertising spending will total $775 million this year alone.

Major Television Networks Get Their Piece of the Pie

With these types of numbers, TV executives realize that the online video genre is not a passing fad.  As such, major television networks are learning to adapt to this new technology.

As it stands right now, consumers can view complete episodes of such popular shows as Desperate Housewives, 24, The Apprentice, and Survivor on the appropriate network TV websites.  Of course, while there is no extra charge to watch these episodes, you will be subject to advertisements.  Consequently, advertisers may find this new format to be an effective one as consumers cannot “switch the channel” as they can on the traditional TV medium.

“By having viewers watch short advertisements before the delivery of free content, the networks increase the value proposition of their reach by delivering advertisers to a larger, more diverse audience,” concurs Carmi Levy, a senior analyst with the Info-Tech Research Group.

If You Can’t Beat’Em, Join’Em

Furthermore, while the major television networks initially launched copyright complaints against YouTube, these same networks are now making mutually beneficial deals with YouTube.  For instance, in 2006, NBC made a deal with YouTube, and submitted Saturday Night Live, The Tonight Show with Jay Leno, and The Office clips on the site.
In addition, later that year, YouTube struck a deal with CBS and began to show ad-supported video clips on a unique CBS-branded channel on the video website.  Both YouTube and CBS will share in the revenue that is generated from this venture.  Some of the shows that are involved in this project include Survivor, CSI, CBS Evening News with Katie Couric and Late Show with David Letterman.

According to YouTube, 30 million people viewed the over 300 clips from CBS and
35,000 individuals subscribed to the CBS channel.  In this time period, the Late Show with David Letterman reportedly gained 200,000 additional viewers as well. 

However, while the major networks are now taking advantage of YouTube as a marketing tool, eventually the networks want to be more in control of their content and advertising revenue.

Consequently, four of the major networks are undergoing talks to develop a site that they hope would rival YouTube. 

“The networks reported to be involved in the talks include Fox, Viacom, CBS, and NBC Universal, and it would make absolute sense for all major players in the broadcast space to watch this evolution carefully and be prepared to jump on board before – or if – it goes live,” explains Levy.  “Failure to actively control programming and advertising as both move increasingly into online delivery channels will result in entities like Google/YouTube controlling a greater slice of the advertising pie.”

While all of this potential newfound online revenue will essentially be good for the network, the network’s affiliates that rely on local TV advertising dollars may suffer under this type of arrangement.  Consequently, a system where consumers must fill in their zip codes before viewing an episode may serve to address this problem.

“This method is a great way for networks and affiliates to leverage their assets online and deliver very relevant advertising,” asserts Ben Bajarin, an Analyst with Creative Strategies.  “For advertisers this tactic is very valuable.”

Overall, although there are many obstacles involving online video that lay ahead, it appears that major networks are willing to face these new challenges head on. In the end that’s their only choice in this digital day and age.